Chapter 14 1. a. Suppose that you want to determine the extent to which disability insurance causes people not to work who in the absence of the program would have worked. Suppose you do this by employing the cross-sectional regression analysis technique described in Chapter 3 and compare the work histories of those on disability insurance to those who are not receiving DI benefits, controlling for observable characteristics. Is this method likely to be sufficient? Explain. b. Bound (1989) studied the moral hazard effects of disability insurance by examining the employment histories of workers who applied for benefits but were denied them and comparing their employment to the employment records of individuals who received disability insurance benefits. (This is a quasi-experimental approach). How does this approach compare to that described in part a? c. In the textbook, it says that a study by Parsons (1991) found that 22% of those who had been rejected for benefits in one year were found to qualify for DI by the same panel in the next year. Given what you know about what workers need to prove to qualify for DI benefits, describe the possible implications of this for the approach described in part b. 2. Suppose that the Disability Insurance program was changed so that individuals who

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